Samsung Electronics Comp., Ltd. (KSC:005930)) must know a thing or two now about how its archrival Apple, Inc. (AAPL) has been feeling. Apple's stock recently slipped back under $400, in the midst of a stall in unit sales. Overall Apple's shares remain down over 40 percent from their peak of $705 USD last September.

I. Profit Miss, Unit Sales Slowdown Hit Samsung Shares Hard

But the situation for Samsung isn't looking much better. Samsung missed on profit expectations, according to a forecast of sales projections for the second calendar quarter of 2013 late this week. Profit still set a record at 9.5T won ($8.3B USD), but that's less than the 10.2T won ($8.9B USD) 43 analysts polled by Thomson Reuters I/B/E/S hoped for, on average

Samsung remains the king of unit sales, but its profit margins and flagship smartphone sales weren't as strong as analysts were hoping for.

The misses drove Samsung into a nearly 4 percent drop in share prices amid an early Friday selloff. That's on top of a 13 percent drop in June following analyst downgrades.

News giant Yonhap, in Samsung's home country of South Korea, is reporting [Korean] that sales of Samsung's Galaxy S IV have hit 20 million. That may sound impressive, but it shows a definite slowing for a phone that was already off to a more sluggish start then some expected.

Apple sold 5 million iPhone 5s in 3 days, but it took Samsung four weeks to reach 10 million sales. Granted, the situation was a bit different -- the Galaxy S IV had perhaps more in common with the iPhone 4S, in that it was viewed by some fans as a disappointingly modest step forward, where as the Galaxy S III and iPhone 5 were viewed as larger leaps. It should be noted that it did take the Galaxy S III seven weeks to reach 10 million sales, but that number is slightly misleading, given its slower global rollout.

It has taken Samsung nearly two months to move another 10 million units, marking nearly a 50 percent slowdown in monthly sales. Overall sources expect Samsung to move 22 million smartphones in Q2 2013.

And while that's certainly part of the issues surrounding Samsung, there's more too the investor concern than mere slowing sales, too.

In 2012 Samsung spent an estimated $4.3B USD globally on advertising its smartphone product -- the most of any company [according toAdAge], and four times the marketing spending of Apple. The marketing is working, to an extent, but some analysts are concerned Samsung is overspending and getting diminishing returns on its investment.

HMC Investment Securities Comp., Ltd. (KSC:001500) analyst Nho Geun-Chang comments toReuters, "I think Samsung spent more on marketing expenses than expected because of the launch of Galaxy S4 smartphone, which led the company's results to miss the market consensus."

Some fear Samsung is spending too much on advertising.

Also concerning is Samsung's overdependence on its smartphone unit for profit. Given the relative lacking profitability of Samsung's other units -- which include the mildly profitable semiconductor unit, along with other less profitable units such as appliances, televisions, and automotive -- Samsung received 74 percent of its profit from mobile phones. That's more even than Apple, who receives 65 percent of its gross profit from the iPhone.

Again, there's more to this comparison than meets the eye -- Apple does have a much larger tablet sales volume driving much of its remaining profit, and Samsung still has a lot of room to grow in that market, where it's doing relatively well. But the dependence on smartphones is certainly something to keep an eye on at Samsung -- and arguably at both companies -- as it leaves it (/them) vulnerable.

Jeff Kim, an analyst at Hyundai Securities Comp., Ltd. (KSC:003450), told Reuters, "One of the biggest risks for Samsung Electronics going forward is that 70 percent of total operating profit comes from mobile business. Diversification is key. Samsung needs to engage in active business transition until end-2014."

Some fear Samsung is relying too much on smartphones for profit.
[Image Source: SeongJoon Cho/Bloomberg]

Other analysts view this as more of a temporary situation, but remain concerned. Jung Sang-jin, a fund manager at Samsung shareholder Dongbu Corp.'s (KSC:005960) subsidiary Dongbu Asset Management, comments, "Samsung's got diversified businesses. When one business lags, it's got others outperforming and propping up the overall profit. The component business is widely expected to pick up the slack in the second half when smartphones slow, but now worries are also mounting that the component business' recovery could be short-lived."

Mr. Jung's biggest concern is that Samsung's new smartphones lack a "wow" factor. He comments, "Is Samsung's smartphone story now over? Not quite yet. It's growth is indeed slowing due largely to disappointing sales of the S4. Yet I think Samsung has some exciting stuff up its sleeves. The problem is no one is sure whether these products can really wow investors and consumers."

III. Tough Competition, but Promising Products

Will Samsung bounce back?

It's hard to say. The company did release a trio of higher margin Galaxy S IV variants, each with slightly cut down hardware, but unique features. One is the only smartphone with an optical zoom (the Galaxy S IV Zoom), another packs a rugged water-proof display (the Galaxy S IV Active), while a third has a smaller 4.3-inch form factor (the Galaxy S IV Mini). If these sell well, it should drive up profit.

In short, Samsung remains king of the smartphone market in unit sales, and near Apple at the top in terms of profit, but threats from both within and without are shaking up share prices, amid its slowing growth.

The thing is that those numbers extend through the lives of those devices, not just the initial launch. During the first quarter of this year the old iPhone 4S was still outselling the GS3.

quote: Anyhow what that chart shows is a rapidly changing dynamic.

That chart shows an analyst pulling invented and unverified shipment claims (Samsung and Amazon don't give official shipment numbers either) that have absolutely nothing to do with units sold to customers. The same thing happened with tablet shipment numbers last year, and here we are in 2013 with reports of tablets sitting unsold in warehouses and being sold at clearance while the iPad has almost 85% usage share.

High end Andoid smartphones selling consistently half as much as their Apple counterparts does not result in what your chart shows. Over a long period of time the gap actually continues to widen. Even I thought that we'd have greater internet traffic and mobile ad revenue from Android, but the gap persists despite Android selling more than ever.

Again, it comes down to the high end being a niche. The GS3 and GS4 makes up under a quarter of Samsung's total sales and under half of Apple's.

I don't care either way, I'd just like to see better sources in these discussions. Lots of people seem to avoid usage metrics and official sales figures because it doesn't back up their personal bias.